fbpixel Concept 81: Repurchase Agreements (Repos) | IFT World
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101 Concepts for the Level I Exam

Concept 81: Repurchase Agreements (Repos)

  • A repurchase agreement is similar to a collateralized loan.
  • This involves the sale of a security (collateral) with a simultaneous agreement by the seller (borrower) to buy the same security back from the purchaser (lender) at an agreed-on price in the future.
  • The repo rate is the implicit interest rate of a repurchase agreement.
  • The repo margin (haircut) is the difference between the amount borrowed and the value of the collateral.
  • Repurchase agreements are a common source of funding for bond dealers.
  • Instead of borrowing funds if a bond dealer is lending funds, then this agreement is known as a reverse repo.

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